While the debate over the relationship between austerity and growth in Europe has been
lively and intense, systematic and rigorous empirical analysis has remained
underdeveloped. With this econometric study of a panel of European countries and the US
from 2010 to 2015, we have sought to fill this gap. In particular, our study is organized as a
"test" of the "it's not austerity" hypothesis, i.e. that austerity cannot be regarded as the
explanatory variable of the post-crisis poor growth in Europe. To this end, we have
articulated this hypothesis in four control variables of the growth-austerity relationship
accounting for external competitiveness, the sovereign debt crisis, the general efficiency of
the economy, and the composition effect of austerity between (less) expenditure and (more)
taxation. As further control variable we have also considered one-year official forecasts of
austerity. Austerity has been identified as a year-to-year increase in the structural primary
balance relative to potential GDP. Upon estimating a static relationship using year-to-year
changes in the variables with two methods (two-way fixed effects and Pesaran's PCCE
(2006)), and a dynamic one, aimed at capturing longer-run effects, with the Arellano-Bond
difference panel estimator, our main conclusion is that the "it's not austerity" hypothesis
does not pass our test. The austerity coefficient is significant in all estimated relationships
(except one) with the "Keynesian" theoretical sign, i.e. a negative effect on GDP growth in a
range between 0.7 and 0.9 in the static specification and slightly lower in the dynamic one.
On the other hand, the evidence also indicates that austerity cannot be regarded as the
single negative factor impinging on growth in the panel under examination. The general
efficiency of the economy has also played a role, but what emerges as the more significant
co-determinant is the increase in the debt/GDP ratio, with an effect on growth comparable
to austerity (or larger in some specifications). However, this fact should be reconsidered
carefully, because the "excess austerity" hypothesis may be corroborated, according to
which it is growth-depressing austerity which causes the debt/GDP ratio to grow,
hypothesis enhanced by the finding that the real value of debt and its real interest rate
are both non-significant.